$0.00
$3.76
bear $0.00
base $2.68
bull $3.76
margin of safety $1.00
market price* $4.57
Business condition attached to the margin of safety
Trailing twelve-month operating cash flow, after stock compensation and capital spending, must turn clearly positive on the current, higher interest cost. In the first half of 2026 operating cash flow was negative $10.3 million, with $13.3 million of capital spending and $25.9 million of stock compensation.
Evolent Health sells specialty care management to health plans and provider groups, mainly for cancer and heart care. Some contracts are fee-based (the Specialty Technology and Services suite, $353.2 million of 2025 revenue) and some put Evolent at risk for the medical cost of a patient group (the Performance Suite, $1,127.3 million). Revenue in 2025 was $1,876.2 million, down 26.6% from $2,554.7 million, mostly because of contract changes with Performance Suite customers, including a $447.3 million effect from one customer transition, and lower Medicare and Medicaid membership at some plan clients. How we measured earnings. We count cash from operations, remove swings in receivables, payables and the reserve for medical claims, then subtract stock compensation and the capital spending needed to stand still. On that basis, per share: 2020 $0.09, 2021 $0.15, 2022 $0.35, 2023 $0.45, 2024 $0.58, and 2025 negative $0.10. Every year from 2017 to 2019 was negative. We measure from 2023, the first year with the acquired National Imaging Associates business, and use the median of 2023 to 2025. One adjustment: until August 2025 the company paid dividends on $175 million of Series A preferred stock ($18.8 million in 2023, $20.1 million in 2024, $11.1 million in 2025) that sat outside operating cash flow. In August 2025 it swapped that preferred stock into a second-lien loan, so the cost now runs through interest. Treating it as the real cost it is, adjusted earnings are $0.29 per share in 2023, $0.40 in 2024 and negative $0.19 in 2025. The median, about $0.29 per share (roughly $32 million a year), is our starting level. The $398.0 million goodwill write-off in 2025 is a non-cash charge tied to the lower share price and is not counted against earnings. Base case: $2.68 per share. Earnings hold at about $0.29 per share for ten years, then fade to zero over the following ten. No growth is credited. Trailing owner earnings fell in 2025, so we do not assume a rebound in the level. Half-year 2026 results give only modest support: revenue was $1,148.8 million against $928.0 million a year earlier, and operating cash flow was negative $10.3 million against negative $25.8 million, an improvement but still negative. The fade reflects that most fixed contract value is recognized within a year (about 95% by the end of 2026), so we cannot point to contracted earnings beyond the near term. Cost of revenue fell to 78.7% of revenue from 85.6% as the mix moved toward higher-margin products; we did not build on that. Bull case: $3.76 per share. Earnings return to the 2024 adjusted level of about $0.40 per share and hold for ten years, then fade over ten. It requires the business to earn what it already earned in 2024, after the higher interest cost. We left out new-customer growth and margin expansion because none is contracted. Bear case: $0 per share. Evolent had about $934 million of debt principal at the end of 2025: $117.2 million first-lien term loan, $72.5 million revolver, $175.0 million second-lien loan, $402.5 million of 3.50% convertible notes due 2029 and $166.8 million of 4.50% convertible notes due 2031. That is roughly 29 times our starting earnings level, and 2025 earnings were negative. Four partners provided 68.5% of 2025 revenue, and the company received a Department of Justice civil investigative demand on August 12, 2025 about diagnosis coding at a former customer (not a customer since 2021); it says it cannot estimate any loss. If 2025 economics persist, owners earn nothing and the debt claims come first, so we value the shares at zero. What would make this wrong: a durable improvement in the Performance Suite economics that lifts cash flow beyond 2023-2024 levels, or, on the downside, losing one of the four largest partners. Margin-of-safety price: $1.00 per share, a deep discount to the base case because of the debt load, customer concentration, thin cash generation and an outcome range that includes zero.